Question

the

CASE STUDY :

The management board of an organization want to start a project that can generate income in order to get a better financial position and better  quality of services it is rendering to the community. The Board of Directors asked you to help in sitting an operating budget including a cash budget for the six months ending 31/12/2018. The Board of Directors has promised to secure $100,000 for this project if it proves to be profitable.

Their accountant gathered theses data:

• $100,000 is expected to be secured by the Board of Directors and the project will start on 1/7/2018.
• A building will be rented at an annual rent fee of $24,000. It is expected that the rent of the first three months will be paid in advance.
• Equipment will be purchased for $79,200. 50% will be paid at the time of purchase i.e. in July 2018 and 50% in October 2018. The estimated useful life of this equipment is 4 years.
• It is expected that utilities will be $5,000 per quarter payable at the beginning of the following quarter.
• Furniture will be purchased for $4,080 in July 2018. The estimated useful life of this equipment is 2 years.
• A vehicle will be purchased for $8,160 in July 2018. Annual insurance is $1,500 payable in July 2018. The estimated useful life of the vehicle is 4 years.
• It is estimated that raw materials usage will average $25,000 monthly. It is also estimated that purchases of raw materials will be $50,000 in July 2018, $60,000 in September 2018, and $60,000 in November 2018.
• It is expected that the payment of supplies will be made in the month following the purchase.
• Salaries are expected to be $2,000/month for the first quarter and $3,000 per month for the second quarter.  
• Other operating expenses are estimated at $2,500 per month.
• Market analysis showed the following sales estimates. Sales will be on credit with collections after 2 months of sales.

	July 16	Aug 16	Sept 16	Oct 16	Nov 16	Dec 16
Estimated Sales in $	0	20,000	30,000	50,000	100,000	100,000

*** you were asked to Prepare in good form

a. A profit and loss budget for the 6 months ending 31/12/2018.

b. A balance sheet budget as at 31/12/2018

c. A cash flow budget for the 6 months ending 31/12/2018.

d. As a Board of Director Member would you approve to fund the project. Why?

Answer 1

Projected Profit& loss For the period Ending 31.12.2018

Particulars		Dr	Particulars		Cr
Purchase		170000	Sales		300000
Gross Profit		150000	Closing stock		20000
Total		320000	Total		320000
Salaries		15000	Gross Profit		150000
Insurance	1500
Less Prepaid Insurance	750	750
Utilities		10000
Rent		12000
Other Operating Exp		2500
Depreciation		11940
Net Profit		97810
Total		150000			150000

Projected Balance Sheet as on 31.12.2018
Liabilities		Amt	Assets		Amt
Capital	100000		Equipments	79200
Add Net Profit	97810	197810	Less: Accumulated Depreciation	9900	69300
Utilities Payable		5000	Furniture	4080
			Less: Accumulated Depreciation	1020	3060
			Vehicle	8160
			Less: Accumulated Depreciation	1020	7140
			Prepaid Insurance	750
			Rent Paid InAdvance	6000	6750
			Closing stock		20000
			Cash In Hand		96560
Total		202810	Total		202810

Cash Flow Statement For the period Ending 31.12.2018

Particulars	Dr
Operating Activities
Sales	300000
Purchase Of Raw Materails	-170000
Payment for Operation	-42000
Net cash flow from Operating Activities	88000
Investing Activities	-91440
Net Increase	-3440
Cash at beginning	100000
Cash at ending	96560

D. The project shows a 97.81% Net return on the Investement for the period . So as a board of director member we can approve the fund.